The Rise of Green Fuels in China: Biomethanol Transport and Renewable Diesel (HVO) Driven by Key Incentives

China’s Green Fuel Leap: Policy, Production, and the Race for Transport Decarbonization

National policies, such as the “14th Five-Year Plan for Industrial Green Development,” explicitly promote methanol vehicles and green methanol production, with additional support for HVO and other renewable fuels (Li et al., 2023).China, the world’s largest energy consumer and vehicle market, is on the cusp of a significant transformation in its transport sector. Facing ambitious “Dual Carbon” targets peaking carbon emissions by 2030 and achieving carbon neutrality by 2060 the country is accelerating the adoption of low-carbon energy vectors. While the world often focuses on China’s massive electric vehicle (EV) uptake, a quieter, yet equally powerful, revolution is underway in liquid alternative fuels. This is the Rise of Green Fuels, spearheaded by Biomethanol Transport and Renewable Diesel (HVO), driven by a strategic mix of government incentives, industrial planning, and a global pivot toward maritime and heavy-duty decarbonization.

The shift isn’t just about replacing fossil fuels; it’s about establishing new, sustainable supply chains that leverage China’s unique feedstock resources, from abundant biomass waste to used cooking oil (UCO). This comprehensive overview dives into the powerful policy mechanisms at play, the burgeoning market for these two critical green fuels, and what it all means for the future of global logistics and energy security.

Decoding the Drivers: Why China is Investing in Biomethanol and HVO

China’s renewed focus on advanced biofuels like Biomethanol and Renewable Diesel (HVO) is rooted in strategic priorities that extend beyond simple climate targets.

1. The Dual Carbon Mandate: Peak Emissions and Carbon Neutrality

The overarching climate goals of “Carbon Peak” by 2030 and “Carbon Neutrality” by 2060 are the primary drivers. Decarbonizing the transport sector is crucial, especially for segments less suited to immediate electrification, such as maritime shipping, heavy-duty road transport, and aviation. Both biomethanol and HVO offer pathways to deep emissions reductions, with HVO, in particular, being a high-performance “drop-in” fuel that requires minimal engine modifications.Biobutanol-diesel blends can be used in diesel engines without engine modification, reducing particulate emissions and greenhouse gases by up to 60% compared to fossil diesel (Obergruber et al., 2021).

2. Energy Security and Feedstock Diversification

China imports a significant amount of its crude oil. Developing domestic, non-fossil fuel alternatives enhances energy security.

Biomethanol: China has vast resources of coal, coking gas, and biomass/agricultural waste (e.g., corn straw). Policies encourage the conversion of these indigenous feedstocks into methanol, a strategic energy carrier. Furthermore, “Green Methanol” projects are emerging that utilize captured CO₂ and green hydrogen, providing a valuable outlet for surplus renewable electricity (wind and solar).
HVO/Renewable Diesel: Production heavily relies on Used Cooking Oil (UCO), where China is the world’s largest collector. Policies that promote the safe collection and processing of UCO for fuel production (like the domestic UCO-to-HVO pilot in Beijing’s Haidian district) not only support green fuel output but also address domestic food safety concerns by preventing UCO from re-entering the food supply.

3. Export Market Opportunities: Catering to Global Shipping

The global maritime industry, in particular, is undergoing a rapid decarbonization wave, with giants like Maersk committing to massive green methanol-fueled vessel orders.

China, with its world-class port infrastructure and massive manufacturing base, is strategically positioning itself as a major supplier of marine green fuels.
Companies like Goldwind and CIMC Enric are announcing multi-million-tonne biomethanol projects, often securing long-term offtake agreements with international shipping lines before even reaching a Final Investment Decision (FID). This export-oriented demand acts as a powerful market signal, de-risking domestic production investment.

Key Incentives and Policy Mechanisms at Work

While China’s biofuels market has traditionally lagged in domestic mandates compared to its $\text{EV}$ push, recent policy movements signal a growing regulatory environment that directly favors advanced green fuels.

1. Fiscal and Investment Support

The 14th Five-Year Plan for Bioeconomic Development (2021-2025) lays the framework by encouraging the development of bioenergy and supporting the integrated biochemical industry. Specific incentives include:

Direct Subsidies and Tax Breaks: Although explicit mandates for HVO or Biomethanol are not yet nationwide, local governments and pilot projects offer fiscal incentives and consumption tax rebates to producers and consumers of these advanced non-food-based biofuels.
Support for Non-Food Feedstocks: The government has historically phased out subsidies for grain-based ethanol (due to food security concerns) and retained or introduced new supports for non-food feedstock projects, which is the foundation of modern biomethanol and (HVO) production. This policy signals a clear preference for sustainability.

2. Pilot Programs and Technology Promotion

Policy often starts with localized testing before nationwide rollout, a classic “test and scale” Chinese approach.

Methanol Vehicle Pilots: A six-year pilot program tested methanol-fueled vehicles (M100) across 10 cities, proving the technical feasibility and economic benefits of using methanol for passenger cars, heavy-duty trucks, and buses. This paved the way for policies that encourage the development and manufacturing of methanol-fueled vehicles and the expansion of the fueling infrastructure.
HVO Blending Trials: The National Energy Administration (NEA) has announced several biofuel pilot programs. For HVO, this includes local trials aimed at establishing a “closed-loop system” from UCO collection to final blending, such as the (HVO) blending trial for municipal transport in Beijing’s Haidian district. These trials are critical for establishing reliable domestic supply chains and building consumer confidence.

3. Integrating Biofuels into Carbon Pricing

A key structural incentive being explored is the integration of advanced biofuels into China’s Certified Emission Reduction (CCER) carbon trading mechanism.

If successful, producers of low-carbon fuels like biomethanol and (HVO) could generate tradeable carbon credits based on their Carbon Intensity (CI) reduction, making them significantly more financially attractive. This “market-pull” mechanism is essential to bridge the current cost gap between green fuels and their fossil equivalents.

Biomethanol: From Waste to Shipping Fuel

Biomethanol, produced from biomass or waste, ranks highest among alternative vehicle fuels in China for its combined energy, environmental, and economic performance. It can reduce CO₂ emissions by up to 59% compared to coal-based methanol and offers cost savings in sectors like marine transport (Wang et al., 2024).

Biomethanol, often referred to as green methanol, is rapidly becoming the dominant alternative fuel for the maritime sector.

Production and GHG Reduction

Biomethanol is produced by gasifying biomass (agricultural waste, forestry residue) to create syngas, which is then converted into methanol. When coupled with green hydrogen or when derived from sustainable biomass, it can achieve a significant reduction in greenhouse gas (GHG) emissions up to 90% compared to fossil fuels.

Key Market Dynamics

Rapid Capacity Build-out: Driven by international demand, Chinese firms are announcing a massive pipeline of green methanol projects. Estimates suggest over 30 million tons per year of green methanol capacity is planned, with a significant portion being biomethanol and e-methanol (produced from captured CO₂ and green hydrogen).
Infrastructure Investment: China’s state-owned giants, including COSCO Shipping and Shanghai International Port Group, have formed alliances to build out the full supply chain: from production bases in Inner Mongolia and the Northeast to dedicated bunker infrastructure at key ports like Shanghai, Ningbo, and Guangzhou. This coordinated national effort is turning potential into reality by ensuring stability of supply.
The M-Vehicle Fleet: On the road, China is the global leader in testing and promoting (neat methanol) vehicles, especially in industrial, heavy-duty, and taxi fleets, aiming to maximize the use of its domestic resources and established methanol production base (originally mostly coal-based).

Renewable Diesel (HVO): The High-Performance “Drop-in” Solution

HVO, made from waste oils or non-edible feedstocks, is fully compatible with existing diesel engines and infrastructure. It achieves 60–95% lower CO₂ emissions over its life cycle and can be produced efficiently using advanced hydrotreating and renewable hydrogen (Gomes et al., 2025).

Renewable Diesel (HVO – Hydrotreated Vegetable Oil) is often considered the superior biofuel alternative to traditional FAME-based biodiesel due to its chemical similarity to fossil diesel.

The (HVO) Advantage

HVO is produced by hydrotreating oils and fats (primarily UCO in China’s case) to create a clean, paraffinic hydrocarbon fuel.

Drop-in Capability: (HVO) is chemically identical to petroleum diesel, meaning it can be used in any diesel engine without modification. This makes its adoption seamless for existing transport fleets.
Superior Performance: (HVO) boasts a high cetane number (better combustion) and excellent cold-weather performance (no gelling), overcoming the stability issues associated with older biodiesel blends.
UCO as Feedstock Gold: China’s position as the world’s largest source of UCO feedstock used in both HVO and SAF (Sustainable Aviation Fuel) production gives it a critical advantage. Recent trade friction with the (anti-dumping duties on Chinese biodiesel exports) has further spurred Beijing to encourage domestic consumption and prioritize (UCO) for higher-value, drop-in fuels like (HVO) and (SAF).

Market Shift to Domestic Use

While historically China’s biodiesel and (HVO) production was largely export-oriented the domestic pilot programs and the looming threat of reduced export avenues are forcing a significant market pivot towards internal use. The Beijing pilot, focused on municipal vehicles, represents the blueprint for scaling this high-quality fuel across the country’s vast logistics and heavy-duty transport sectors.

Challenges and the Future Outlook for Green Fuel Adoption

Despite the encouraging policy environment and industrial investment, the expansion of biomethanol and (HVO) is not without its challenges.

The Cost and Scale Hurdle

Green fuel production costs remain a significant obstacle. Green methanol must become more cost-competitive with its fossil counterpart, which will require continued technological breakthroughs, scaling up of green hydrogen production, and a higher carbon price signal. The ability of producers to access low-cost renewable energy (especially wind and solar) for e-fuel production is critical to cost reduction.

The Feedstock Competition

The available supply of sustainable feedstocks, particularly UCO, is finite and must be allocated between competing demands:

HVO/Renewable Diesel
Sustainable Aviation Fuel (where China is also rapidly expanding capacity)
Marine Bio-bunkering (FAME-based and HVO)

Policy clarity on feedstock prioritization is necessary to ensure stable supply to the most strategically important sectors.

Conclusion: China’s Role in a Global Green Transport Future

China’s commitment to its Dual Carbon targets is fundamentally reshaping its energy mix, creating a powerful engine for the development and commercialization of Biomethanol Transport and Renewable Diesel (HVO). The transition is not instantaneous, but the strategic application of government incentives, pilot programs, and coordinated industrial planning has transformed a niche market into a global powerhouse.

By prioritizing advanced, non-food-based biofuels and building the necessary infrastructure for both domestic use and global export, China is not just solving its own decarbonization challenge. It is setting a decisive course for the future of zero-carbon global logistics and establishing itself as a dominant force in the coming era of green transport fuels. The (HVO) and biomethanol markets are poised for exponential growth, making China a crucial country to watch in the global race to a net-zero future.

CITATIONS

Obergruber, M., Hönig, V., Procházka, P., Kučerová, V., Kotek, M., Bouček, J., & Mařík, J. (2021). Physicochemical Properties of Biobutanol as an Advanced Biofuel. Materials, 14. https://doi.org/10.3390/ma14040914.

Li, C., Jia, T., Wang, S., Wang, X., Negnevitsky, M., Wang, H., Hu, Y., Xu, W., Zhou, N., & Zhao, G. (2023). Methanol Vehicles in China: A Review from a Policy Perspective. Sustainability. https://doi.org/10.3390/su15129201.

Gomes, D., Neto, R., Baptista, P., Ramos, C., Correia, C., & Rocha, R. (2025). A review of advanced techniques in hydrotreated vegetable oils production and life cycle analysis. Biomass and Bioenergy. https://doi.org/10.1016/j.biombioe.2025.107689.

Wang, S., Li, C., Hu, Y., Wang, H., Xu, G., Zhao, G., & Wang, S. (2024). Assessing the prospect of bio-methanol fuel in China from a life cycle perspective. Fuel. https://doi.org/10.1016/j.fuel.2023.130255.